Bring a large pot of salted water to a boil and carefully add the 2 pounds halved baby potatoes. Boil until fork tender, drain, and set aside.
In a skillet over medium-high heat, cook the 5 slices diced thickly cut bacon until the fat starts to render, add the 1 medium finely diced red onion. Cook the onions and bacon for 5 more minutes.
Remove the onions and bacon from the pan and set aside in a large bowl. reserve the bacon fat for the dressing.
Add the 2 tablespoons olive oil, 3 tablespoons white wine vinegar, 1 tablespoon granulated sugar, 1 tablespoon Dijon mustard, 1 tablespoon fresh chopped dill, and½ teaspoon salt to a jar with the reserved bacon fat and shake well to make the dressing.
Add the boiled potatoes to the large bowl with bacon and onions and pour the dressing on top. Toss well to combine. serve warm or chill in the fridge for a couple of hours and serve cold.